7 Top High-Yield Bond Funds to Buy Now: An In-Depth Guide
Investing in high-yield bonds, often called "junk bonds," can be an attractive option for income-focused investors willing to take on a bit more risk. High-yield bond funds diversify risk by pooling bonds from multiple issuers, offering the potential for consistent monthly income. Here’s a deeper look at seven of the best high-yield bond funds available right now.
| Bond Fund | Ticker | Expense Ratio | 30-Day SEC Yield |
|---|---|---|---|
| Schwab High Yield Bond ETF | SCYB | 0.03% | 7.0% |
| Invesco Senior Loan ETF | BKLN | 0.65% | 7.6% |
| iShares iBoxx $ High Yield Corporate Bond ETF | HYG | 0.49% | 6.8% |
| SPDR Bloomberg High Yield Bond ETF | JNK | 0.4% | 6.9% |
| Fidelity Capital & Income Fund | FAGIX | 0.97% | 5.2% |
| Vanguard High-Yield Corporate Fund Investor Shares | VWEHX | 0.22% | 5.9% |
| iShares Fallen Angels USD Bond ETF | FALN | 0.25% | 6.5% |
1. Schwab High Yield Bond ETF (SCYB)
The Schwab High Yield Bond ETF is one of the most cost-effective high-yield bond funds on the market. With an exceptionally low expense ratio of 0.03%, it’s an attractive option for fee-conscious investors who still want exposure to high-yield corporate debt.
- Fund Strategy: SCYB focuses on bonds issued by corporations with below-investment-grade ratings, providing a 7.0% yield to compensate for the increased risk.
- Holdings and Credit Quality: The fund is highly diversified, investing in bonds from sectors like energy, telecommunications, and healthcare.
- Risk Management: SCYB includes bonds with a spread of maturities, which helps manage interest rate sensitivity. Schwab’s focus on transparency and low fees makes this ETF especially appealing to long-term investors.
- Best For: Income-focused investors looking for low fees in a high-yield bond fund.
2. Invesco Senior Loan ETF (BKLN)
The Invesco Senior Loan ETF is unique among high-yield bond funds as it invests in senior loans rather than traditional bonds. Senior loans are typically issued by corporations with below-investment-grade credit ratings but are structured to be higher in the capital structure than regular bonds, meaning they have priority in the event of a default.
- Fund Strategy: BKLN targets floating-rate senior loans, meaning the income generated rises with interest rates, helping mitigate interest rate risk. This provides a solid yield of 7.6%.
- Holdings and Credit Quality: The fund's holdings include loans from companies across industries, like finance and manufacturing, which typically have credit ratings just below investment-grade.
- Risk Management: BKLN's loans adjust with interest rate changes, which may appeal to investors concerned about rate hikes. However, because these loans are from below-investment-grade issuers, there’s still risk, including default risk.
- Best For: Investors looking for high income with some level of interest rate protection.
3. iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
The iShares iBoxx High Yield Corporate Bond ETF is one of the most popular high-yield ETFs, known for its size and liquidity. With a moderate expense ratio of 0.49%, HYG is a reliable choice for those seeking exposure to a broad range of high-yield bonds.
- Fund Strategy: HYG invests in bonds issued by large, established corporations, and aims to provide stable monthly income through diversified holdings.
- Holdings and Credit Quality: HYG primarily holds bonds with ratings in the BB or B range, investing in companies from sectors like consumer goods, energy, and technology.
- Risk Management: Due to its broad exposure, HYG is well-suited for managing default risk across industries. The fund is sensitive to market conditions, though, so it may experience volatility in economic downturns.
- Best For: Investors wanting a highly liquid, widely held high-yield bond ETF.
4. SPDR Bloomberg High Yield Bond ETF (JNK)
The SPDR Bloomberg High Yield Bond ETF (JNK) offers another popular option for high-yield bond exposure. Known for its high level of transparency, JNK is structured to closely track the Bloomberg High Yield Very Liquid Index, giving investors insight into its holdings and risk profile.
- Fund Strategy: JNK seeks to track the performance of high-yield U.S. corporate bonds, distributing income monthly with a current yield of 6.9%.
- Holdings and Credit Quality: JNK includes bonds from companies across several industries, with credit ratings largely in the BB and B ranges, and it tends to invest in bonds with shorter durations to manage interest rate sensitivity.
- Risk Management: JNK’s index-tracking approach helps it stay consistent in its strategy, although it still carries the risks inherent in high-yield bonds, such as sensitivity to economic downturns.
- Best For: Investors looking for transparency in their high-yield bond investments with relatively stable returns.
5. Fidelity Capital & Income Fund (FAGIX)
The Fidelity Capital & Income Fund is a mutual fund that uniquely combines high-yield bonds with a selection of stocks, offering a more diversified approach compared to typical high-yield bond funds.
- Fund Strategy: Unlike other high-yield bond funds, FAGIX allocates a portion of its portfolio to equity, which can enhance returns but may also increase volatility. This approach allows it to balance the 5.2% yield with the potential for capital appreciation.
- Holdings and Credit Quality: The fund primarily invests in B-rated bonds, combined with a smaller allocation to equities in sectors like energy, consumer goods, and industrials.
- Risk Management: With a focus on both high-yield debt and equities, FAGIX offers a unique way to manage risk and return. Its high expense ratio of 0.97% is a drawback but may be worthwhile for investors seeking growth potential alongside income.
- Best For: Income-focused investors willing to take on some equity exposure for potentially higher returns.
Related: Exploring Solana Meme Coins: Risks, Rewards, and How to Navigate the Market
6. Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)
Vanguard’s High-Yield Corporate Fund is well-regarded for its low expense ratio and reputation for stability. This actively managed mutual fund targets corporate bonds with relatively higher credit quality within the high-yield category, offering a balanced risk-reward profile.
- Fund Strategy: VWEHX aims to generate high current income by investing in a diversified mix of corporate bonds. Its low expense ratio of 0.22% helps investors keep more of their income.
- Holdings and Credit Quality: This fund focuses on bonds rated BB or higher, with a focus on industries like technology, communications, and finance.
- Risk Management: Vanguard’s emphasis on relatively high-quality bonds within the high-yield space helps lower risk while still generating a 5.9% yield, making this fund a more conservative high-yield option.
- Best For: Conservative high-yield investors who want stable returns with reduced risk.
7. iShares Fallen Angels USD Bond ETF (FALN)
The iShares Fallen Angels USD Bond ETF focuses on a unique subset of high-yield bonds known as “fallen angels”—bonds that were originally investment-grade but have since been downgraded.
- Fund Strategy: By targeting fallen angels, FALN looks for bonds that may have been temporarily downgraded but still offer strong long-term potential, aiming to capture higher yields at 6.5%.
- Holdings and Credit Quality: FALN’s holdings vary widely, with issuers from across sectors such as healthcare, utilities, and technology, often with BB ratings.
- Risk Management: Fallen angels tend to perform well during recoveries, as they have a chance to regain investment-grade status. However, the fund can be sensitive to market downturns.
- Best For: Investors who believe in the recovery potential of temporarily downgraded bonds and want exposure to bonds with a high upside.
Related: Emirates Skywards Rewards World Elite Mastercard Review: A Travel Credit Card Guide
These high-yield bond funds each offer a unique approach to managing risk and income, from Schwab’s ultra-low fees to Fidelity’s mix of high-yield bonds and equities. Evaluating your own risk tolerance, income needs, and market outlook can help guide the best choice for you among these top-performing high-yield bond funds.
